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Bristol Myers (BMY) Gains 16% in a Month: Should You Buy or Wait?
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Bristol Myers Squibb Company (BMY - Free Report) has regained some of the lost territories in the past month, giving anxious investors a ray of hope. This biotech giant has been facing a few challenges for quite some time now.
Shares of BMY have risen 16.4% in a month against the industry’s decline of 0.7%. The stock has also outperformed the sector and the S&P 500 in this period.
The rally came after the company reported better-than-expected second-quarter results in July. Upside in blood-thinner drug Eliquis and immuno-oncology drug Opdivo sales and robust performance of new drug Reblozyl drove the top line. Consequently, the company raised its annual earnings guidance.
BMY is banking on newer drugs like Opdualag, Reblozyl and Breyanzi to stabilize its revenue base as its legacy drugs face generic competition. Reblozyl has put up a stellar performance in the past few quarters and the drug should contribute significantly in the coming decade.
Oncology drug Opdualag’s sales have been robust, thereby fueling the top line. BMY is striving to expand Opdualag’s label and a potential approval should be a significant boost. Sales of Breyanzi continue to gain traction from the approval of recent new indications and expanded manufacturing capacity.
Bristol Myers, like its fellow biotech player Gilead Sciences, Inc. (GILD - Free Report) , is looking to counter generic competition for its key drugs through strategic acquisitions and the introduction of new drugs to augment its product portfolio. The acquisition of Karuna Therapeutics added KarXT (xanomeline-trospium) to its pipeline. The candidate is currently under review in the United States for treating schizophrenia in adults, with a target action date of Sep 26, 2024. A potential approval will diversify BMY’s product portfolio.
Challenges for Older Drugs
One of its top drugs, Revlimid (indicated for multiple myeloma), is facing generic competition, which has adversely impacted the top line.
Blood thinner medicine Eliquis, for which BMY has a worldwide co-development and co-commercialization agreement with pharma giant Pfizer (PFE - Free Report) , is the biggest contributor to the top line. Eliquis’ sales beat expectations in the second quarter. Opdivo, too, maintained momentum on the back of consistent label expansions.
However, Eliquis is slated to face generics later in the decade and Opdivo might face a slowdown as core indications mature.
These three drugs comprise a major chunk of the company’s revenues. In the first half of 2024, Eliquis, Opdivo and Revlimid contributed nearly 61% to its total sales of $24.1 billion. Hence, it is going to be a daunting task for BMY to maintain revenue growth in the face of generic competition for these drugs.
Cost-Cutting Measures Should Boost Earnings
In April 2024, BMY announced a strategic cost-reduction plan, which should result in approximately $1.5 billion in savings by the end of 2025. The company will focus on prioritizing investing in key growth brands and optimizing operations across the organization. BMY is already progressing with this plan and is on track to achieve its targeted savings.
High Debt Ratio Worrisome
While BMY’s strategy of acquiring companies with promising drugs/candidates is encouraging, the company has undertaken colossal debt to finance these acquisitions. As of Jun 30, 2024, Bristol Myers’ total debt-to-total capital ratio was a staggering 75.4%. This is worrisome. The company had cash and equivalents of $7 billion and a long-term debt of $48.8 billion as of the aforementioned date.
Valuation & Estimates
From a price perspective, even after this short rally, BMY is currently tilting toward the low end of the 52-week range.
Going by the price/sales ratio, BMY’s shares currently trade at 2.03x forward sales, lower than its mean of 2.93x but slightly higher than 2.02x for the industry.
Image Source: Zacks Investment Research
Estimate Movement
The Zacks Consensus Estimate for 2024 earnings per share (EPS) has gone up to $0.74 from $0.58 over the past 30 days after the company raised its annual forecast.
Image Source: Zacks Investment Research
It’s worth noting that the annual earnings estimate has taken a massive hit due to acquisition-related expenses in 2024.
Conclusion
While large biotech companies are generally considered safe havens for investors interested in this sector, we would advise them to wait for a while before turning positive. While the impressive performance in the second quarter boosted investor sentiment, BMY still has an uphill task at hand, and it remains to be seen if this rebound is sustainable.
Newer drugs pave the way for growth, but there is a long way to go for this biotech goliath. For investors already owning the stock, staying invested will be a prudent move, given the levels at which the stock is trading. BMY has been consistently paying out and increasing dividends, and the current yield of 5.14% is quite attractive. BMY currently carries a Zacks Rank #3 (Hold).
Image: Shutterstock
Bristol Myers (BMY) Gains 16% in a Month: Should You Buy or Wait?
Bristol Myers Squibb Company (BMY - Free Report) has regained some of the lost territories in the past month, giving anxious investors a ray of hope. This biotech giant has been facing a few challenges for quite some time now.
Shares of BMY have risen 16.4% in a month against the industry’s decline of 0.7%. The stock has also outperformed the sector and the S&P 500 in this period.
The rally came after the company reported better-than-expected second-quarter results in July. Upside in blood-thinner drug Eliquis and immuno-oncology drug Opdivo sales and robust performance of new drug Reblozyl drove the top line. Consequently, the company raised its annual earnings guidance.
Bristol Myers Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Newer Drugs Boost Growth
BMY is banking on newer drugs like Opdualag, Reblozyl and Breyanzi to stabilize its revenue base as its legacy drugs face generic competition. Reblozyl has put up a stellar performance in the past few quarters and the drug should contribute significantly in the coming decade.
Oncology drug Opdualag’s sales have been robust, thereby fueling the top line. BMY is striving to expand Opdualag’s label and a potential approval should be a significant boost. Sales of Breyanzi continue to gain traction from the approval of recent new indications and expanded manufacturing capacity.
Bristol Myers, like its fellow biotech player Gilead Sciences, Inc. (GILD - Free Report) , is looking to counter generic competition for its key drugs through strategic acquisitions and the introduction of new drugs to augment its product portfolio. The acquisition of Karuna Therapeutics added KarXT (xanomeline-trospium) to its pipeline. The candidate is currently under review in the United States for treating schizophrenia in adults, with a target action date of Sep 26, 2024. A potential approval will diversify BMY’s product portfolio.
Challenges for Older Drugs
One of its top drugs, Revlimid (indicated for multiple myeloma), is facing generic competition, which has adversely impacted the top line.
Blood thinner medicine Eliquis, for which BMY has a worldwide co-development and co-commercialization agreement with pharma giant Pfizer (PFE - Free Report) , is the biggest contributor to the top line. Eliquis’ sales beat expectations in the second quarter. Opdivo, too, maintained momentum on the back of consistent label expansions.
However, Eliquis is slated to face generics later in the decade and Opdivo might face a slowdown as core indications mature.
These three drugs comprise a major chunk of the company’s revenues. In the first half of 2024, Eliquis, Opdivo and Revlimid contributed nearly 61% to its total sales of $24.1 billion. Hence, it is going to be a daunting task for BMY to maintain revenue growth in the face of generic competition for these drugs.
Cost-Cutting Measures Should Boost Earnings
In April 2024, BMY announced a strategic cost-reduction plan, which should result in approximately $1.5 billion in savings by the end of 2025. The company will focus on prioritizing investing in key growth brands and optimizing operations across the organization. BMY is already progressing with this plan and is on track to achieve its targeted savings.
High Debt Ratio Worrisome
While BMY’s strategy of acquiring companies with promising drugs/candidates is encouraging, the company has undertaken colossal debt to finance these acquisitions. As of Jun 30, 2024, Bristol Myers’ total debt-to-total capital ratio was a staggering 75.4%. This is worrisome. The company had cash and equivalents of $7 billion and a long-term debt of $48.8 billion as of the aforementioned date.
Valuation & Estimates
From a price perspective, even after this short rally, BMY is currently tilting toward the low end of the 52-week range.
Going by the price/sales ratio, BMY’s shares currently trade at 2.03x forward sales, lower than its mean of 2.93x but slightly higher than 2.02x for the industry.
Image Source: Zacks Investment Research
Estimate Movement
The Zacks Consensus Estimate for 2024 earnings per share (EPS) has gone up to $0.74 from $0.58 over the past 30 days after the company raised its annual forecast.
Image Source: Zacks Investment Research
It’s worth noting that the annual earnings estimate has taken a massive hit due to acquisition-related expenses in 2024.
Conclusion
While large biotech companies are generally considered safe havens for investors interested in this sector, we would advise them to wait for a while before turning positive. While the impressive performance in the second quarter boosted investor sentiment, BMY still has an uphill task at hand, and it remains to be seen if this rebound is sustainable.
Newer drugs pave the way for growth, but there is a long way to go for this biotech goliath. For investors already owning the stock, staying invested will be a prudent move, given the levels at which the stock is trading. BMY has been consistently paying out and increasing dividends, and the current yield of 5.14% is quite attractive. BMY currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.